CIT Vs Abad Exim (P) Ltd. (Kerala High Court)

The question remaining is with respect to the deduction, insofar as the contribution made to the Fishermen’s Welfare Fund. The Fund itself was declared unconstitutional by a decision of the Honourable Supreme Court in AIR 2002 SC 973 [Koluthara Exports Ltd. v. State of Kerala and Others. We find that the Honourable Supreme Court while declaring the Fund to be unconstitutional also directed that the amount of contributions already paid will not be liable to be refunded to the contributors. In such circumstances, there is no question of a refund to the assessee and as found by the Tribunal, when the contributions were made, there was a valid fund created. The contribution so made to the Fishermen’s Welfare Fund Board having not been refunded as specifically interdicted by the Honourable Supreme Court, the same would also be employed for the welfare of the fishermen. We, hence, answer the said question of law against the Revenue and in favour of the assessee.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

The three appeals by the Revenue arise from the order of the Income Tax Appellate Tribunal allowing the assessee’s appeals for the assessment years 2001-02, 2002-03 and 2003-04. The question arising in all the years is as to the eligibility under Section 10A of the Income Tax Act, 1961 (‘Act’ for short). We re-frame the questions of law as below:

“1. Whether the assessee carrying on processing of sea food would be entitled to claim deduction under Section 10A for reason of the substitution to the Section made by Finance Act, 2000; specifically deleting the proviso which permitted processing also to be considered as an activity eligible under Section 10A?

2. Whether the processing of prawns undertaken by the assessee under IQF (Individual Quick Freezing) can be termed to be a manufacture or production which already has been negatived in 2012 (2) KLT SN 86 (C.No.79) [CIT v. Choice Trading Corporation Ltd.]?”

2. One another question arising in the year 2002-2003 is with respect to the deduction claimed on the contribution made to the Fishermen’s Welfare Fund.

The third question for that year alone is framed as follows:

“3. Whether the assessee is entitled to the deduction on contributions paid towards Fishermen’s Welfare Fund, which Fund was declared unconstitutional by the judgment of the Honourable Supreme Court in AIR 2002 SC 973 [Koluthara Exports Ltd. v. State of Kerala and Others].

3. The decision cited by the Revenue in Choice Trading Corporation Ltd. (supra) makes it very clear that processing of prawns by IQF is not a manufacture or production; which was a declaration made in the context of a claim under Section 80I of the Act. The distinction attempted by the learned counsel for the assessee herein is that the proviso which accompanied the substituted provision under sub-Section (1) of Section 10A makes it clear that the assessee who was entitled to the benefit as per the sub-Section prior to substitution would be so entitled even after the substitution for the unexpired period of ten consecutive assessment years.

4. We deem it fit that the proviso be extracted herein:

“Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years.”

Admittedly, the assessee had been enjoying the benefit prior to Finance Act, 2000 on the basis of the provision as it existed before substitution. The proviso makes it clear that such persons who had the benefit prior to substitution would be entitled to deduction referred to in the sub-Section for the unexpired period of the ten consecutive assessment years; as available in the un-amended provision.

5. The Revenue had attempted to argue before the Tribunal that the continuation of the deduction would be with reference to sub-Section (1), which was substituted. We are unable to agree with such a contention. Any assessee, who was entitled to the benefit prior to the substitution would be entitled to the benefit under the substituted provision for the unexpired period as per the un-amended provision. We, hence, answer the first question of law in favour of the assessee and against the Revenue. In view of the answer we have given to question No.1, we are of the opinion that question No.2 need not be answered; which issue is answered by another Division Bench, which we follow.

The question remaining is with respect to the deduction, insofar as the contribution made to the Fishermen’s Welfare Fund. The Fund itself was declared unconstitutional by a decision of the Honourable Supreme Court as cited hereinabove. We find that the Honourable Supreme Court while declaring the Fund to be unconstitutional also directed that the amount of contributions already paid will not be liable to be refunded to the contributors. In such circumstances, there is no question of a refund to the assessee and as found by the Tribunal, when the contributions were made, there was a valid fund created. The contribution so made to the Fishermen’s Welfare Fund Board having not been refunded as specifically interdicted by the Honourable Supreme Court, the same would also be employed for the welfare of the fishermen. We, hence, answer the said question of law against the Revenue and in favour of the assessee. We, reject the appeals filed by the Revenue. No costs.